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Health financing and the crisis of healthcare system in Nigeria – Part 2


Minister of Health, Prof. Isaac Adewole

Unfortunately, the success of a robust and functional financing regime for the sustainability of the health sector and the achievement of an efficient healthcare delivery hinges on the balance that a country is able to achieve between its current health financing needs and health spending.

As we have noted earlier, Nigeria’s budgetary allocation to health is not up to par. And this is even made worse by the fact that her health financing structure is serviced heavily, like most low-income countries, by private out-of-pocket payment by the poor citizens of the country that need the government to finance the health package for them. And here, we come to the crux of the matter for Nigeria: the successful implementation of the National Health Act of 2014, and especially the injection of urgent funds into the Basic Health Care Provision Fund in the health policy.


The N57.15bn earmarked for the BHCPF in the 2018 budget has not been disbursed till date.

So, we are back to square one on the non-implementation dynamics. The essence of the BHCPF is two-fold: to raise sufficient funds for the financing of the sector and to provide financial risk protection to the population.

Without enabling the BHCPF with the requisite massive funding, what is the guarantee that the second phase of the National Strategic Health Development Plan will succeed where the first one practically failed, and because of funding? The high incidence of private out of pocket customers paying directly for their own health needs not only undermine the government’s responsibility to achieving financial risk protection.

The negative framework also aggravates social inequality by enabling both the rich and the poor to pay the same amount in order to treat the same or similar ailments.

Of course, the rich and the wealthy who could pay feel only safe by getting treatment abroad. But where does that leave the poor whose poverty puts them in mortal health risk, and even eventual death?

All over the world, there have been equal concern about health systems and health financing. And this is self-evident because democratic governance empowers the citizens and contributes to their well-being. There are three levels at which health financing ordinarily operate, government financing, private financing and direct user charge (or “private out-of-pocket” financing) which is the most popular that leaves the individual to cater for his or her own health requirements.


The incidence of these three varies from low-income countries to middle-income countries to high-income countries. In the LIC, it is the private out of pocket framework that that has the highest incidence, followed by government financing with a minute private pooling of resources. In the MIC, it is the government that takes the lead in health financing, followed by the private out of pocket dynamics.

In the HIC, the government still leads the health financing operation, followed by the private pool of health resources. The private out of pocket framework is diminished.

At this juncture, we arrive at the most important question at the heart of the successful institutional reform of the Nigerian health system: how does the government create the fiscal enablement that translates into an increased and sustained resource flow into the healthcare system? In principle, there are four possible avenues open for the government to operate.

The first and most immediate is for government to strengthen its tax administration regime in a way that will free up more taxes for health financing.

The second option involves lowering priority expenditure heads in a way that frees up more resources that could be diverted efficiently to the health sector.


Third, the government could borrow from domestic or external sources. And the fourth, as a corollary, involves receiving grants from bilateral, multilateral or such other external funding sources.

Yet, we must not discount the need for a sound political judgment and strategizing moderated by a strong policy intelligence that will counteract some of the negative consequences of some of these options.

Most importantly, government needs to ensure, at least, that short-term expenditure and any associated future spending on health can be financed from current and future revenues.

If current expenditures are however financed through debt as with the Chinese financed infrastructure development projects, they must be assessed for their impact on the underlying growth rate or its impact on the country’s capacity to generate the revenue to service these debts.

But here again, we are forced to confront one of the terrible complexities of institutional reforms. In this case, we must be aware that the possibility of more resource flow into the health sector does not automatically lead to the transformation of the health system and a better healthcare delivery unless the government takes seriously the challenge of the implementation capacity of making the health system service ready to achieve a judicious and efficient utilization of the available resources.

This implies giving utmost priority to certain crucial factors in public health funding: i) ensuring equitable, efficient and sustainable financing; ii) developing effective and equitable risk pooling and prepayment mechanisms; iii) improving regulatory capacity to deal with market failures; iv) ensuring appropriate governance arrangement; v) getting better value for money through allocation and technical efficiency gains; vi) targeting financing to the poor and vulnerable; and vii) learning from the experiences of the high-income countries.


These levels of financing are founded on some models that provide the alternative means by which government can ensure an equitable and efficient healthcare delivery to the citizens. These are (a) national health services systems, (b) social health insurance funds,(c) voluntary health insurance, (d) community health insurance, and (e) direct purchases by customers.

What matters most, whatever framework is chosen, is the commitment that the government give to the three component functions of health financing—revenue collection, pooling of resources, and the purchase of intervention and services.

Good performance in this regard is considered in terms of breath of coverage—“the percentage of the population with insurance coverage and financial protection.”

So, with this we clearly see why in the LIC, the citizens are left to fend for themselves while in the HIC, the government takes the burden of health financing.

Let’s take a quick critical look at two of the pillars that support health financing structure in Nigeria namely, National Health Insurance Fund and the Medium-Term Expenditure Framework (MTEF).

Going by global comparative experience and benchmarks, policymakers should put a question mark on the issue of whether health insurance model from the perspective of its economics, is the best mechanism for risk pooling in health that is most suitable for Nigeria.


The argument is that income taxes have proven not to be the most efficient source of health funding of health systems in low-income countries.

This is because the size of formal sector employment which contribution makes up health insurance fund compared to the informal sector constitute less than 15-20% of total employment.

Consequently, health insurance fund, given the level of contribution relative to the size of the population is a drop in the ocean of expanding health challenge and associated funding requirement. It is therefore doubtful if the growth momentum of the national economy as a function of the level of income and therefore the level of employment is capable of absorbing new contributions that is large enough to make significant difference over time.

In terms of allocative efficiency, sustainable funding and resource predictability, Nigeria now plans and budgets within MTEF model that combines macroeconomic models and tools for projecting revenue and expenditure.

However, the effectiveness of MTEF for macroeconomic balance and increased budgetary predictability requires strong impact assessment for validation.

Charting a way forward for institutional transformation of the health system and the health sector in Nigeria requires firming up the statutory brief of the existing health institutions. At the very top of this institutional imperative is the budgetary allocation to the health sector. We have seen earlier that this is very low.


However, since improving the impact of health service delivery is imperative, then a country like Nigeria must necessarily work within the context of budget constraints and difficulties in generating additional fiscal space.

The best practice remains targeting expenditures to critical interventions that have the possibility of achieving the greatest marginal impact on the poor.

This is where more effective risk pooling that leverage social health insurance become crucial. It is also crucial to scale up the efficiency level of the regulatory health institutions, especially the federal and state ministries of health, assisted by, say, the National Primary Health Care Agency (NPHCA). The task is to implement national and state health budgets to provide medical services that cover a network of public health providers.

Since the budgetary allocation is already small, the pressure must be placed on the ministries of health to strengthen their administrative capacity for public expenditure review and tracking surveys within a stakeholders-driven process. Such reviews would not only analyze cost effectiveness of health investments, they will assess the level and composition of health spending, intersectoral and intrasectoral allocations.

The ministries will further review the governance structure, the professionalism of health workers and operational efficiency of health institutions. Their tracking surveys will track the flow of government resources to determine the amount that actually reaches the service delivery levels, and the leakages due to corruption and resource capture.

This feedback is critical for creating and targeting efficient interventions to ensure optimal health system and service delivery outcomes.


The ministries of health must equally be concerned with the following: innovative strategies to address financing gaps, purchase and supply issues essential to healthcare, condition of service of health workers, the burden of overpricing practices by public health providers, lack of essential medical supplies like drugs, increasing overall health system efficiency through reform of service purchasing functions and by instituting incentive-based payment mechanisms.

The popular adage says, “health is wealth.” This is true in its fundamental recognition that a healthy people constitute the foundation of individual and national wealth. But then, to achieve that wealth involves the government rethinking its commitment to deploying the wealth of the nation to the health of its citizens as the first condition for generating the human capital enthusiasm that will achieve, in turn, an all-round productivity revolution and wealth for the Nigerian state.

This commitment tasks the development planning of Nigeria, which must specifically set out clear-cut priorities about providing democratic healthcare delivery to Nigerians.

This, in turn, will bring together the Ministry of Finance and the Ministry of Budget and National Planning to hammer out the nitty gritty of the budgetary allocation in a way that ensures that the Medium Term Expenditure Framework (MTEF) properly reflects the allocation to the health sector for the fiscal year, and also enabled the ministries of health to chart the relationship between health goals and means of achieving them.

Olaopa Executive Vice-Chairman, Ibadan School of Government &Public Policy – ISGPP, Ibadan
(Being the 4th Emeritus Professor OladipoAkinkugbe Guest Lecture Delivered by Prof. Olaopa, at Alexander Brown Hall of the College of Medicine, University of Ibadan

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